Intrinsic value of Heska - HSKA

Previous Close

$79.50

  Intrinsic Value

$58.07

stock screener

  Rating & Target

sell

-27%

Previous close

$79.50

 
Intrinsic value

$58.07

 
Up/down potential

-27%

 
Rating

sell

We calculate the intrinsic value of HSKA stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  23.81
  13.30
  12.47
  11.72
  11.05
  10.45
  9.90
  9.41
  8.97
  8.57
  8.22
  7.89
  7.60
  7.34
  7.11
  6.90
  6.71
  6.54
  6.38
  6.25
  6.12
  6.01
  5.91
  5.82
  5.74
  5.66
  5.60
  5.54
  5.48
  5.43
  5.39
Revenue, $m
  130
  147
  166
  185
  206
  227
  249
  273
  297
  323
  349
  377
  406
  436
  466
  499
  532
  567
  603
  641
  680
  721
  763
  808
  854
  903
  953
  1,006
  1,061
  1,119
  1,179
Variable operating expenses, $m
 
  106
  119
  133
  147
  162
  178
  194
  212
  229
  248
  265
  285
  306
  328
  350
  374
  398
  424
  450
  478
  506
  536
  567
  600
  634
  669
  706
  745
  786
  828
Fixed operating expenses, $m
 
  22
  22
  23
  23
  24
  24
  25
  26
  26
  27
  28
  28
  29
  30
  30
  31
  32
  33
  34
  34
  35
  36
  37
  38
  39
  40
  41
  42
  43
  44
Total operating expenses, $m
  114
  128
  141
  156
  170
  186
  202
  219
  238
  255
  275
  293
  313
  335
  358
  380
  405
  430
  457
  484
  512
  541
  572
  604
  638
  673
  709
  747
  787
  829
  872
Operating income, $m
  17
  20
  25
  30
  35
  41
  47
  54
  60
  67
  74
  85
  93
  101
  109
  118
  127
  137
  147
  157
  168
  179
  191
  203
  216
  230
  244
  259
  274
  290
  307
EBITDA, $m
  22
  25
  30
  36
  41
  48
  54
  61
  68
  75
  83
  91
  99
  108
  117
  126
  136
  146
  157
  168
  179
  191
  204
  217
  230
  245
  259
  275
  291
  308
  326
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  1
  1
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  11
Earnings before tax, $m
  17
  20
  24
  29
  35
  40
  46
  52
  59
  65
  72
  82
  90
  98
  106
  114
  123
  132
  142
  152
  162
  173
  184
  196
  209
  221
  235
  249
  264
  279
  296
Tax expense, $m
  5
  5
  7
  8
  9
  11
  12
  14
  16
  18
  20
  22
  24
  26
  29
  31
  33
  36
  38
  41
  44
  47
  50
  53
  56
  60
  63
  67
  71
  75
  80
Net income, $m
  11
  14
  18
  21
  25
  29
  34
  38
  43
  48
  53
  60
  65
  71
  77
  83
  90
  97
  103
  111
  118
  126
  135
  143
  152
  162
  172
  182
  193
  204
  216

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  11
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  131
  136
  153
  171
  190
  210
  230
  252
  275
  298
  323
  348
  375
  402
  431
  460
  491
  523
  557
  592
  628
  666
  705
  746
  789
  833
  880
  929
  980
  1,033
  1,089
Adjusted assets (=assets-cash), $m
  120
  136
  153
  171
  190
  210
  230
  252
  275
  298
  323
  348
  375
  402
  431
  460
  491
  523
  557
  592
  628
  666
  705
  746
  789
  833
  880
  929
  980
  1,033
  1,089
Revenue / Adjusted assets
  1.083
  1.081
  1.085
  1.082
  1.084
  1.081
  1.083
  1.083
  1.080
  1.084
  1.080
  1.083
  1.083
  1.085
  1.081
  1.085
  1.084
  1.084
  1.083
  1.083
  1.083
  1.083
  1.082
  1.083
  1.082
  1.084
  1.083
  1.083
  1.083
  1.083
  1.083
Average production assets, $m
  18
  20
  22
  25
  28
  31
  34
  37
  40
  44
  47
  51
  55
  59
  63
  67
  72
  77
  81
  87
  92
  97
  103
  109
  115
  122
  129
  136
  143
  151
  159
Working capital, $m
  23
  15
  17
  19
  21
  23
  25
  27
  30
  32
  35
  38
  41
  44
  47
  50
  53
  57
  60
  64
  68
  72
  76
  81
  85
  90
  95
  101
  106
  112
  118
Total debt, $m
  1
  6
  12
  18
  25
  32
  39
  47
  55
  64
  73
  82
  91
  101
  111
  122
  133
  144
  156
  169
  182
  195
  209
  224
  239
  255
  272
  289
  308
  327
  347
Total liabilities, $m
  44
  49
  55
  61
  68
  75
  82
  90
  98
  107
  116
  125
  134
  144
  154
  165
  176
  187
  199
  212
  225
  238
  252
  267
  282
  298
  315
  332
  351
  370
  390
Total equity, $m
  87
  87
  98
  110
  122
  135
  148
  162
  176
  191
  207
  224
  241
  258
  277
  296
  315
  336
  358
  380
  403
  427
  453
  479
  506
  535
  565
  596
  629
  663
  699
Total liabilities and equity, $m
  131
  136
  153
  171
  190
  210
  230
  252
  274
  298
  323
  349
  375
  402
  431
  461
  491
  523
  557
  592
  628
  665
  705
  746
  788
  833
  880
  928
  980
  1,033
  1,089
Debt-to-equity ratio
  0.011
  0.070
  0.120
  0.170
  0.200
  0.240
  0.270
  0.290
  0.310
  0.330
  0.350
  0.370
  0.380
  0.390
  0.400
  0.410
  0.420
  0.430
  0.440
  0.440
  0.450
  0.460
  0.460
  0.470
  0.470
  0.480
  0.480
  0.490
  0.490
  0.490
  0.500
Adjusted equity ratio
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  11
  14
  18
  21
  25
  29
  34
  38
  43
  48
  53
  60
  65
  71
  77
  83
  90
  97
  103
  111
  118
  126
  135
  143
  152
  162
  172
  182
  193
  204
  216
Depreciation, amort., depletion, $m
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  16
  17
  18
  19
Funds from operations, $m
  -11
  19
  23
  27
  31
  36
  40
  45
  50
  56
  61
  66
  72
  78
  85
  91
  98
  106
  113
  121
  129
  138
  147
  156
  166
  176
  187
  198
  210
  222
  235
Change in working capital, $m
  -17
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
Cash from operations, $m
  6
  18
  21
  25
  29
  34
  38
  43
  48
  53
  58
  63
  69
  75
  82
  88
  95
  102
  110
  117
  126
  134
  143
  152
  161
  171
  182
  193
  204
  216
  229
Maintenance CAPEX, $m
  0
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -16
  -17
  -18
New CAPEX, $m
  -3
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
Cash from investing activities, $m
  -3
  -4
  -4
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -15
  -17
  -18
  -18
  -19
  -21
  -22
  -23
  -23
  -25
  -26
Free cash flow, $m
  3
  13
  16
  20
  24
  27
  31
  36
  40
  45
  50
  54
  59
  65
  70
  76
  82
  89
  96
  103
  110
  117
  125
  133
  142
  151
  160
  170
  181
  191
  203
Issuance/(repayment) of debt, $m
  0
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  12
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
Issuance/(repurchase) of shares, $m
  2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  1
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  12
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
Total cash flow (excl. dividends), $m
  4
  19
  23
  26
  30
  34
  39
  43
  48
  53
  58
  63
  69
  75
  81
  87
  94
  100
  108
  115
  123
  131
  139
  148
  157
  167
  177
  188
  199
  210
  223
Retained Cash Flow (-), $m
  -23
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
Prev. year cash balance distribution, $m
 
  10
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  19
  12
  15
  18
  22
  26
  30
  34
  38
  43
  47
  52
  57
  62
  68
  74
  80
  86
  93
  100
  107
  114
  122
  130
  138
  147
  156
  166
  176
  187
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  18
  11
  13
  15
  17
  19
  20
  21
  22
  22
  22
  22
  22
  21
  20
  19
  17
  16
  14
  13
  11
  9
  8
  7
  5
  4
  3
  3
  2
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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Heska Corporation sells veterinary diagnostic and specialty products. The Company operates through two segments: Core Companion Animal Health (CCA) and Other Vaccines, Pharmaceuticals and Products (OVP). The CCA segment includes, primarily for canine and feline use, blood testing instruments and supplies, digital imaging products, software and services, local and cloud-based data services, allergy testing and immunotherapy, and single use offerings, such as in-clinic diagnostic tests and heartworm preventive products. Its OVP segment includes private label vaccine and pharmaceutical production for cattle but also for other species, including equine, porcine, avian, feline and canine. All OVP products are sold by third parties under third-party labels. It focuses on supporting veterinarians in canine and feline healthcare space. It offers a line of veterinary blood testing and other instruments. It manufactures biological and pharmaceutical products for other animal health companies.

FINANCIAL RATIOS  of  Heska (HSKA)

Valuation Ratios
P/E Ratio 50.8
Price to Sales 4.3
Price to Book 6.4
Price to Tangible Book
Price to Cash Flow 93.1
Price to Free Cash Flow 186.3
Growth Rates
Sales Growth Rate 23.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -25%
Cap. Spend. - 3 Yr. Gr. Rate 8.4%
Financial Strength
Quick Ratio 11
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 1.1%
Interest Coverage 0
Management Effectiveness
Return On Assets 9.1%
Ret/ On Assets - 3 Yr. Avg. 5.7%
Return On Total Capital 14.5%
Ret/ On T. Cap. - 3 Yr. Avg. 9.6%
Return On Equity 14.6%
Return On Equity - 3 Yr. Avg. 9.7%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 41.5%
Gross Margin - 3 Yr. Avg. 41.1%
EBITDA Margin 16.9%
EBITDA Margin - 3 Yr. Avg. 12%
Operating Margin 12.3%
Oper. Margin - 3 Yr. Avg. 8.1%
Pre-Tax Margin 13.1%
Pre-Tax Margin - 3 Yr. Avg. 8%
Net Profit Margin 8.5%
Net Profit Margin - 3 Yr. Avg. 5.5%
Effective Tax Rate 29.4%
Eff/ Tax Rate - 3 Yr. Avg. 29.2%
Payout Ratio 0%

HSKA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HSKA stock intrinsic value calculation we used $130 million for the last fiscal year's total revenue generated by Heska. The default revenue input number comes from 2016 income statement of Heska. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our HSKA stock valuation model: a) initial revenue growth rate of 13.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for HSKA is calculated based on our internal credit rating of Heska, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Heska.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of HSKA stock the variable cost ratio is equal to 72.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $21 million in the base year in the intrinsic value calculation for HSKA stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Heska.

Corporate tax rate of 27% is the nominal tax rate for Heska. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the HSKA stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for HSKA are equal to 13.5%.

Life of production assets of 8.3 years is the average useful life of capital assets used in Heska operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for HSKA is equal to 10%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $87 million for Heska - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 7.226 million for Heska is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Heska at the current share price and the inputted number of shares is $0.6 billion.

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COMPANY NEWS

▶ ETFs with exposure to Heska Corp. : November 27, 2017   [Nov-27-17 02:09PM  Capital Cube]
▶ Mariko Gordon Starts 5 New Positions in 3rd Quarter   [Nov-21-17 12:33PM  GuruFocus.com]
▶ Heska beats 3Q profit forecasts   [Nov-02-17 08:25AM  Associated Press]
▶ Heska Reports Third Quarter Results   [08:00AM  PR Newswire]
▶ Heska Announces 7-Year Agreement with PetVetCare Centers   [Nov-01-17 08:00AM  PR Newswire]
▶ ETFs with exposure to Heska Corp. : October 30, 2017   [Oct-30-17 11:57AM  Capital Cube]
▶ ETFs with exposure to Heska Corp. : October 9, 2017   [Oct-09-17 11:38AM  Capital Cube]
▶ Heska posts 2Q profit   [Jul-31-17 11:02PM  Associated Press]
▶ Heska Reports Second Quarter Results   [08:00AM  PR Newswire]
▶ ETFs with exposure to Heska Corp. : July 11, 2017   [Jul-11-17 02:38PM  Capital Cube]
▶ ETFs with exposure to Heska Corp. : June 30, 2017   [Jun-30-17 03:02PM  Capital Cube]
▶ ETFs with exposure to Heska Corp. : June 19, 2017   [Jun-19-17 03:29PM  Capital Cube]
▶ Scott Humphrey Joins Heska's Board of Directors   [Jun-13-17 09:00AM  PR Newswire]
▶ Heska Corp. Value Analysis (NASDAQ:HSKA) : May 4, 2017   [May-04-17 04:51PM  Capital Cube]
▶ Here's Why Heska Corporation Is Dropping Today   [May-02-17 12:33PM  Motley Fool]
▶ Heska posts 1Q profit   [08:15AM  Associated Press]
▶ Heska Reports First Quarter Results   [08:00AM  PR Newswire]
▶ Medical Device Maker Bolts Higher On Earnings In Massive Volume   [Apr-26-17 11:10AM  Investor's Business Daily]
▶ Today's Strong Buy Stocks at New Highs   [Apr-05-17 08:35PM  Zacks]
Financial statements of HSKA
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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